The Economic Impact of Council Budget Cuts: A Case Study on Job Losses

1. Does this make economic sense?

2. 24 May 2010 • George Osborne announced £6bn of budget cuts to this years’ budget. • Overnight local councils lost over £1bn in grants from central government. • Sadly, some people have already lost their jobs. • In the Spending Review on 20 October 2010 George Osborne announced a real terms cut of 28 per cent in the Formula Grant to local councils in England by 2014/15.

3. Consider Gloria • She worked for the council and was paid £20,000 pa gross • Gloria is one of the workers who has now lost her job because George Osborne cut council grants on 24 May 2010. • Gloria’s council lost the grant that funds her job. • The government benefits because she is working. • Let’s look at the cost to the government of making her redundant. • She is a single parent with one child • She pays £4,160 a year in rent (£80 a week) • Her Council Tax is £700 a year

4. Gloria pays £4,276 in Income Tax and National Insurance to the government

5. Gloria’s employer also pays £1,828 in Employers National Insurance so the government gets £6,104 from Gloria and her employer

6. Consider Gloria • Gloria gets Child Benefit – £1,056 a year • And she gets Child Tax Credit – another £2,161 • After paying her rent (£4,160) and Council Tax (£700) she has £14,081 left to spend • Assume that she pays 15% of that in VAT, petrol duty, alcohol duty, car tax etc – that is another £2,112 that is paid to the government

7. Overall the government gets £4,999 from Gloria.

8. £4,276 Income Tax and NI Council Tax £700 VAT etc £2,112 £3,216 Child Benefit and Child Tax Credit Gross Pay £20,000 £4,160 in rent Employers NI £1,828 Town Hall HM Treasury

9. Therefore net income to central government • Income tax £2,705 • Nat Ins £1,571 • Spending taxes (VAT, petrol duty etc) £2,112 • Employer’s Nat Insurance contribution £1,828 • Less money paid in tax credits -£2,161 • Less money paid in child benefit -£1,056 • Net income to central government £4,999

10. What happens when Gloria is made redundant? We are in recession and she can’t find a job so the government has to pay her various benefits. Let’s take a look at the costs……..

11. Gloria is out of work • She gets Job Seekers Allowance (£64.30/week) - £3,344/year • She gets housing benefit to pay her rent £4,160/year • She gets council tax benefit £700/year • She still gets child benefit £20.30/week - £1,055.60/year • She gets a Child Tax Credit of £2,851

12. The Government pays Gloria £12,110 in various benefits

13. But the government still gets some money from Gloria…….. • Her housing benefit is paid to the landlord and her council tax benefit is paid to the council so she has £7,250 left for herself and her child to live on • Assume that she pays 15 per cent of that in VAT, petrol duty, alcohol duty, car tax etc – so £1,087 is paid to the Government)

14. Check therefore net cost to government • Job seeker’s allowance £3,344 • Child tax credits £2,851 • Child benefit £1,056 • Housing benefit £4,160 • Council tax benefit £ 700 • Less income from VAT etc -£1,087 • Net cost to government £11,022

15. Instead of receiving £4,999 the government pays out £11,022

16. The government has cut the grant to the council • The council cuts its budget and makes Gloria redundant • The government no longer gets £4,999 from Gloria • Instead it pays £11,022 to support Gloria and her child • The government might save £20,000 by cutting £20,000 in grant to the council but the government loses £16,021 in the process • But it does not stop there….

17. £1,087 in VAT and other taxes £7,250 in JSA, Child benefit + child tax credit £4,160 in Housing Benefit £700 in Council tax benefit Town Hall HM Treasury

18. The impact of sacking Gloria • Now Gloria is unemployed she does not spend as much as she used to • That means less demand in the private sector • Less demand means private sector job cuts too • The government then loses taxes from the private sector workers made redundant and has to pay them benefits too • Economists say that every 100 jobs lost in the public sector leads to another 41 jobs lost in the private sector • Making Gloria redundant makes no economic sense, does it?

19. For more info on Richard’s work go to his website: taxresearch.org.uk/ Presentation informed by blog written by tax accountant Richard Murphy.

20. What can I do? Picture of Gloria taken by Laura Brechtbert used under a Creative Commons license. The use of picture does not imply Laura Brechtbert endorses this presentation • If you work in the public sector, join UNISON: unison.org.uk/join • Sign up to our Million Voices for Public Services campaign: unison.org.uk/million • Write to your MP – find your MP at: theyworkforyou.com

21. Public Services Don’t wait till they’ve gone to defend them UNISON campaigning for a fairer society